Scenario development to improve crude palm oil production and farmers' revenue: A system dynamics framework

Crude Palm Oil is a strategic agricultural commodity that became one of the pillars for the economy of Indonesia. These commodities provide a large of income for the country through export revenues and taxes as well as play an important role in gross domestic product of Indonesia. Besides, this sub-sector has an important role in employment, open up business opportunities, and regional development. Some problems that arise in crude palm oil industry include the following: 1) low productivity of smallholder; 2) supporting infrastructure which is still not much; 3) low competitiveness of palm oil; 4) lack of working capital of smallholders (farmers). Therefore, in this research we develop a system dynamics model to improve crude palm oil production and farmers' income. As the method used in model development, we utilized system dynamics simulation based on consideration that system dynamics (SD) has been widely used in industry, macro-economic planning, social development, environment, and other fields. This method emphasizes on integrity and nonlinear properties of complex systems that very suitable to model crude palm oil production and farmers' income. Research results show that by conducting scenario re-planting, increased yield of Oil Extraction Rate (OER), and the reduction of oil losses, the projected of smallholder's CPO production would achieve 22,663,594 tons and total national CPO production is expected to reach 48.5 million tons in 2030. Farmers' revenue would increase by an average of 30% of their previous revenue. It is therefore by 2030, farmers' revenue per hectare is estimated to reach Rp80.4 million.